IRS updates accounting method proceduresTaxpayers must obtain the IRS’s consent to change any of their accounting methods under Code Sec. 446(e). The IRS has updated and made changes to its revenue procedures for obtaining IRS consent...

In Rev. Proc. 2015-20, the IRS substantially simplified the requirements for small businesses to adopt the tangible property regulations (the "repair regulations") for 2014. The relief allows small businesses to change their accounting methods, to comply with the regulations, without having to apply Code Sec. 481 and without having to file Form 3115, Application for Change in Accounting Method.

In Rev. Proc. 2015-20, the IRS substantially simplified the requirements for small businesses to adopt the tangible property regulations (the "repair regulations") for 2014. The relief allows small businesses to change their accounting methods, to comply with the regulations, without having to apply Code Sec. 481 and without having to file Form 3115, Application for Change in Accounting Method.

The repair regulations are broad and comprehensive, applying to any business that uses tangible property. The regulations totally redo the rules for deducting and capitalizing expenses associated with fixed assets. IRS adopted final regulations in September 2013, effective for tax years beginning on or after January 1, 2014. Taxpayers also have the option of applying the final regulations in 2012 and/or 2013.

Change of accounting method

Taxpayers ordinarily have to file Form 3115 to request IRS consent to change a method of accounting. The IRS provided automatic consent for taxpayers to change their accounting methods to comply with the repair regulations, but this did not relieve taxpayers of the requirement to file Form 3115. Furthermore, taxpayers changing their accounting method must apply Code Sec. 481(a), which requires them to calculate an adjustment to their accounting treatment of the same items for prior years, as if the new method were used in the prior years. Code Sec. 481 is designed to prevent any duplication of deductions or omission of income upon a change in accounting method.

Small businesses in particular had complained to the IRS about the burden of implementing the regulations with a full Code Sec. 481 adjustment. Taxpayers would be required to go back in time (as far back as their books allow) and redo their analysis of prior year tangible property costs.

Relief

The IRS has now responded by providing relief from the requirements for changing an accounting method. Small business taxpayers can make the change without filing Form 3115 and without having to make a 481 adjustment. Instead, taxpayers can make the change on a "cutoff" basis, by taking into account only amounts paid or incurred, and dispositions of property, in their 2014 tax year. In effect, small business taxpayers can make the change prospectively.

The relief applies to a taxpayer that has one or more separate and distinct trade(s) or business(es) with either total assets under $10 million at the start of the 2014 tax year, or that has average annual gross receipts of $10 million or less for the prior three years.

Claiming relief

Because the IRS provided automatic consent, taxpayers making the change for 2014 would not have to file Form 3115 until the deadline for their 2014 income tax return, either March 15 or, with an extension, September 15. So taxpayers (and their tax representatives) are right in the middle of the process to comply with the regulations for 2014. The timing of the IRS's relief, in February 2015, is opportune, and gives small businesses plenty of time to comply with the regulations for 2014.

The relief is elective. Small businesses can follow normal change of accounting procedures, or can use the relief provided in Rev. Proc. 2015-20. There are trade-offs to claiming the relief. For some taxpayers, there may be tax savings from applying Code Sec. 481 to prior years, regardless of the burden involved to make the calculations. Furthermore, taxpayers that do not file Form 3115 will not get audit protection for tax years before 2014.

The White House and the new Congress continue to look for common ground on tax legislation and tax reform in 2015. Both sides say tax reform is possible in 2015 and behind the usual rhetoric there seems to be a real drive to move tax reform in the 114th Congress. Reform could be similar to the comprehensive package moved nearly 30 years ago in the Tax Reform Act of 1986, or, as many observers predict, will take a new track to reflect a vastly different economy and Tax Code compared to 1986.

The White House and the new Congress continue to look for common ground on tax legislation and tax reform in 2015. Both sides say tax reform is possible in 2015 and behind the usual rhetoric there seems to be a real drive to move tax reform in the 114th Congress. Reform could be similar to the comprehensive package moved nearly 30 years ago in the Tax Reform Act of 1986, or, as many observers predict, will take a new track to reflect a vastly different economy and Tax Code compared to 1986.

Tax bills

The two tax writing committees-House Ways and Means and Senate Finance-have so far approved a number of tax bills impacting individuals and businesses. Among the bills that House Ways and Means has marked up is legislation to:

Extend and expand the charitable deduction for contributions of food inventory

Enhance and make permanent the research tax credit

Make permanent the reduced recognition period for built-in gains of S corporations

Extend permanently the special rules for tax-free distributions from IRAs for charitable purposes by qualified individuals

The Senate Finance Committee (SFC) also has been busy with tax legislation. The SFC has approved, among other bills, legislation to:

Modify the alternative minimum tax for small insurance companies

Provide special rules for charitable contributions to agricultural organizations

Create a Waste-Heat-to-Power investment tax credit

Exclude from income certain compensation received by public safety officers and their dependents

Require the IRS to notify exempt organizations before revoking exempt status for failing to file returns

Exclude from Gross Income Certain Clean Coal Power Grants

Create a Military Spouse Job Continuity Credit

House Speaker John Boehner, R-Ohio, has signaled his support for some of the bills. Boehner controls the House's schedule and his support is necessary to bring bills before the full House for a vote. In the Senate, the new Majority Leader, Mitch McConnell of Kentucky, has said he wants to move tax legislation this year but has not provided any timetable for legislation. Because of Senate rules, bills generally come more slowly to the floor for a vote and often are subject to a lengthy amendment process. The Senate also generally requires a supermajority of 60 votes to approve tax legislation. Our office will keep you posted of developments as tax legislation moves forward.

Tax reform

All of the key players have voiced support for tax reform-President Obama, Speaker Boehner, Majority Leader McConnell-along with the chairs of the House and Senate tax writing committees. They differ on the scope of tax reform, how to pay for tax reform, and more details.

President Obama's fiscal year 2016 budget recommendations, released in early February, could be a catalyst for tax reform, especially the President's proposals for small businesses. Many of the small business proposals, such as enhanced Code Sec. 179 expensing, enjoy bipartisan support. As in past years, the hurdle of how to pay for these and other tax reforms is problematic. President Obama has proposed to eliminate fossil fuel tax breaks, repeal LIFO, and other revenue raisers, to pay for business tax reform, including a reduction in the corporate tax rate.

Affordable Care Act

The Affordable Care Act (ACA) is another potential hurdle to tax reform this year. The House has approved legislation to repeal the ACA and Senate Republicans have offered replacement bills. The real test of how the ACA could impact tax reform will come after June, when the U.S. Supreme Court will decide the fate of the Code Sec. 36B premium assistance tax credit. If the Supreme Court strikes down IRS regulations extending the credit to individuals in both federally-facilitated Marketplaces and state-run Marketplaces, President Obama is expected to call on Congress to come up with a legislative solution. If the White House and Congress can reach an agreement, it would be a good harbinger for tax reform.

If you have any questions about pending tax legislation or tax reform, please contact our office.

During a recent hearing of the House Ways and Means Committee, lawmakers challenged IRS Commissioner John Koskinen on the Service's use of civil-asset forfeiture laws, demanding to know why some small business owners were caught up in the Service's investigative web when they had committed no crime. Lawmakers also announced during the hearing that the Treasury Inspector General for Tax Administration (TIGTA) is planning to review the IRS's practices in this area.

During a recent hearing of the House Ways and Means Committee, lawmakers challenged IRS Commissioner John Koskinen on the Service's use of civil-asset forfeiture laws, demanding to know why some small business owners were caught up in the Service's investigative web when they had committed no crime. Lawmakers also announced during the hearing that the Treasury Inspector General for Tax Administration (TIGTA) is planning to review the IRS's practices in this area.

Structuring and civil forfeiture

Federal law requires domestic financial institutions to report a cash transaction exceeding $10,000 with the Secretary of the Treasury. An "anti-structuring" provision under 31 U.S.C. §5324 prohibits individuals from structuring, or attempting to structure or assist in structuring, transactions for the purpose of evading these currency transaction reporting requirements.

The law also prohibits an individual to cause or attempt to cause a domestic financial institution to fail to meet the federal reporting requirements for currency transactions. In other words, if an individual has made numerous cash deposits under the $10,000 reporting threshold, that could trigger the anti-structuring provisions of the law.

IRS practices under fire

The IRS has faced criticism that it is improperly applying the law to seize the assets of small businesses or individuals who have unwittingly broken the anti-structuring law, but intended no criminal activity. In 2014, several media outlets reported that the IRS had seized funds belonging to small business owners with histories of making repeat cash transactions under the $10,000 reporting threshold. The reports prompted the IRS to announce it will no longer pursue the seizure and forfeiture of funds associated solely with "legal source" structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture and the case has been approved at the director of field operations level..

Congressional hearing

Koskinen appeared at the subcommittee's hearing on the IRS's use of civil forfeiture laws to defend the practice and found himself fending off accusations, among others, that revenue agents were under pressure to fill quotas on assets seizures. The commissioner vigorously denied the accusations, stating that the IRS has never established such goals.

"It's illegal to have a goal tied to collections," Koskinen said. He further stated under additional questioning that quotas have never been a part of a revenue agent's evaluation. "We are prohibited from rewarding anybody on the amount they have collected," he added.

"To be clear, structuring is a felony no matter the source of the funds, and federal law allows for seizures as a permissible tool," Koskinen added. He conceded, however, that many small businesses and individuals may make deposits under $10,000 without any intent to avoid the reporting requirements.

Koskinen stressed the IRS's policy change, announced last October, which would have the IRS pursue only those cases where criminal activity is evident. "We have tried to take a common sense approach to how we operate in this area," Koskinen added. "The IRS will no longer pursue the seizure and forfeiture of funds associated solely with ‘legal source' structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture," Koskinen said.

Employers and other organizations must obtain an employer identification number (EIN) to identify themselves for tax administration purposes, such as starting a new business, withholding taxes on wages, or creating a trust. Entities apply for an EIN by filing IRS Form SS-4. Page two of the form advises whether an applicant needs an EIN.

Employers and other organizations must obtain an employer identification number (EIN) to identify themselves for tax administration purposes, such as starting a new business, withholding taxes on wages, or creating a trust. Entities apply for an EIN by filing IRS Form SS-4. Page two of the form advises whether an applicant needs an EIN.

Other entities that need an EIN include corporations, partnerships, estates, trusts, state or local governments, and churches and other nonprofit organizations. Unincorporated entities (sole proprietorships) that establish a retirement plan or that file certain tax forms will also need an EIN for filing the relevant forms.

Application process

The IRS does not charge for obtaining an EIN and has sought to simplify the application process. Taxpayers may apply by mail, by fax, or online. International applicants may also apply by phone. In all cases, if the IRS determines that the applicant needs an EIN, the IRS will issue the EIN and transmit it to the taxpayer in the same manner as the application was made.

Applications by mail generally take four weeks, the IRS indicates, once the SS-4 is properly and completely filled out. Entities located in the U.S. or a U.S. territory can apply online. For online applications, the IRS validates the information and issues the EIN immediately. The IRS notes that the principal officer or other relevant party must have a valid taxpayer identification number, such as a Social Security Number, to use the online application process. The IRS will respond to a completed fax application within four business days, if the applicant provides a fax number.

Filing without EIN

The IRS states that it will only issue one EIN per day per responsible party, regardless of the means of applying. If the taxpayer needs to file a return but lacks an EIN because of this limitation, the IRS advises that the taxpayer should attach a completed Form SS-4 to the completed and signed tax return. The IRS will assign an EIN and then process the return.

Form 1095-A, Health Insurance Marketplace Statement, is a new information return. The IRS requires the Health Insurance Marketplace to report certain information about every individual who receives health insurance coverage through the Marketplace to the agency and also to the enrollee. Form 1095-A reports information about the individual(s) covered by Marketplace coverage, the starting and ending dates of coverage, and the insurer that provided coverage. Form 1095-A also reports the cost of coverage, the plan's total monthly payment, any advance payment, and more.

Form 1095-A, Health Insurance Marketplace Statement, is a new information return. The IRS requires the Health Insurance Marketplace to report certain information about every individual who receives health insurance coverage through the Marketplace to the agency and also to the enrollee. Form 1095-A reports information about the individual(s) covered by Marketplace coverage, the starting and ending dates of coverage, and the insurer that provided coverage. Form 1095-A also reports the cost of coverage, the plan's total monthly payment, any advance payment, and more.

Copies to IRS and enrollees

IRS rules require the Marketplace to file Form 1095-A with the agency and provide a copy to individuals on or before January 31, 2015, for coverage in 2014. If an individual did not receive a Form 1095-A in February 2015, he or she should contact the Marketplace and not the IRS. The IRS has cautioned that it is unable to answer questions about the information on Form 1095-A or about missing or lost forms because these forms come from the Marketplace.

Form 1040

Health insurance obtained through the Marketplace satisfies the requirement under the Patient Protection and Affordable Care Act (PPACA) that all individuals carry minimum essential health coverage, unless exempt. On 2014 Form 1040, U.S. Individual Income Tax Return, the IRS has added a new line on which individuals will report if they had minimum essential coverage for 2014 (and on Forms 1040-EZ and 1040A). Individuals who had coverage through the Marketplace for 2014 will check this box on their Form 1040.

Code Sec. 36B credit

According to the IRS, nearly nine out of 10 individuals who obtained health insurance coverage through the Marketplace in 2014 qualified for the Code Sec. 36B premium assistance tax credit. This credit helps to offset the cost of health insurance. Form 1095-A includes information about the credit that individuals will need when they file their returns, such as the second lowest cost Silver Plan.

All individuals who claim the Code Sec. 36B credit must file a return. The IRS has developed a special form (Form 8962, Premium Tax Credit) for individuals to file with their return.

Many enrollees in Marketplace coverage were likely eligible for advance payments of the credit to their insurer. In this case, these individuals must reconcile the amount of the advance payment with the amount of the actual credit when they file their 2014 returns. Keep in mind that that changes in income, family size or other life events may result in the amount of the actual credit being different from the amount estimated by the Marketplace at the time coverage was obtained. If an individual's actual allowable credit is less than the amount of advance credit payments, the difference, subject to certain caps, will be subtracted from any refund or added to any balance due. If the actual allowable credit is more than the advance credit payments, the difference will be added to any refund or subtracted from any balance due.

Errors

In late February, the U.S. Department of Health and Human Services (HHS) announced that some 800,000 Forms 1095-As reporting coverage for 2014 were calculated incorrectly by the Marketplace. HHS has advised enrollees that they should receive corrected Forms 1095-A in early March. If you have any questions about your Form 1095-A please contact our office.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of March 2015.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of March 2015.

March 2Employers. File Forms 1097, 1098, 1099, 3921, 3922, and W2G with the IRS for certain payments made in 2014. Such payments may include, but are not limited to, the following: cash payments for fish purchased from anyone engaged in the trade or business of catching fish; compensation for workers who are not considered employees; dividends and other corporate distributions; interest; rent; royalties; payments of Indian gaming profits to tribal members; profit sharing distributions; retirement plan distributions; original issue discount; prizes and awards; medical and health care payments; debt cancellation; and cash payments over $10,000. If filing electronically, see March 31.

In addition, employers must file copies of all the Forms W-2 and W-2G, Certain Gambling Winnings, issued for 2014. If filing electronically, see March 31.

March 4Employers. Semi-weekly depositors must deposit employment taxes for payroll date February 25–27.

March 10Employees who work for tips. Employees who received $20 or more in tips during February must report them to their employer using Form 4070.

March 11Employers. Semi-weekly depositors must deposit employment taxes for payroll date March 4–6.

March 13Employers. Semi-weekly depositors must deposit employment taxes for payroll date March 7–10.

March 16Corporations. File a 2014 calendar year income tax return (Form 1120) and pay any tax due. S corporations. File a 2014 calendar year income tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc., or a substitute Schedule K1.S corporation election. File Form 2553, Election by a Small Business Corporation, to elect to be treated as an S corporation beginning with calendar year 2015.Electing large partnerships. Provide each partner with a copy of Schedule K1 (Form 1065B), Partner's Share of Income (Loss) From an Electing Large Partnership, or a substitute Schedule K1.

March 20Employers. Semi-weekly depositors must deposit employment taxes for payroll date March 14–17.

March 25Employers. Semi-weekly depositors must deposit employment taxes for payroll date March 18–20.

March 27Employers. Semi-weekly depositors must deposit employment taxes for payroll date March 21–24.

March 31Employers. Electronically file Forms 1097, 1098, 1099, 3921, 3922, and W2G with the IRS for certain payments made during 2014. See March 2 for a non-exclusive listing of types of payments covered. Electronically file copies of all the Forms W-2 issued for 2014. Electronically file copies of all the Forms W-2G, Certain Gambling Winnings, issued for 2014.

April 1Employers. Semi-weekly depositors must deposit employment taxes for payroll date March 25–27.

April 3Employers. Semi-weekly depositors must deposit employment taxes for payroll date March 28–31.